Beware the pitfalls of naming a minor as your beneficiary

A minor generally doesn’t have the right to manage his or her assets, including any inheritance.

But sometimes a minor child becomes the beneficiary of a sizable family inheritance. That can occur because a parent dies without a will or trust, leading to an unavoidable direct inheritance by the child.

If a minor is chosen as a beneficiary of a retirement account or life insurance policy, many challenging issues can arise.

First of all, a minor is not legally allowed to take control of inherited assets left directly to him or her. Instead, an adult or financial institution has to be appointed to manage the estate until the minor turns 18.

In essence, that means the estate must be overseen by the probate court, a time-intensive and costly endeavor, which also requires an attorney to file annual accountings for the guardian or conservator. The court then evaluates all expenses and investments to be sure the assets are managed properly.

Most spending from the minor’s assets must be authorized by the court. It’s challenging to get such approval, too, because the court typically aims to protect the minor’s assets until he or she reaches age 18.

Meanwhile, any fees to administer the estate also reduce the value of the minor’s inheritance over time, as that is the source from which the fees are typically paid.

Finally, at age 18 all estate assets will be distributed directly to the minor, a result that many families may not like.